Nothing has been hotter in the market than cloud and communications infrastructure technology companies (well, at least until the last couple of weeks). Many of the hottest companies, such as a Snowflake (SNOW) or a Zoom (ZM), have been created in the just the past few years.
Most of the innovation in cloud and communications infrastructure has come from the startup community. Some of the great success stories we have followed in the cloud technology market that have had successful Initial Public Offerings (IPOs) include Atlassian (TEAM), Cloudflare (NET), Crowdstrike (CRWD), Datadog (DDOG), Fastly (FSLY), Fortinet (FTNT), Okta (OKTA), Snowflake (SNOW), and Twilio (TWLO), and Zscaler (ZS) – to name some of the biggest ones.
We expect a lot more opportunities in the next few years – and I’m about to tell you where to look.
The scale and speed of innovation in cloud technology is truly astounding these days. This is most clearly demonstrated by Zoom, which was founded in 2011 by Eric Yuan, a former corporate vice president for Cisco Webex. Zoom went from idea to a $100 billion market cap in just nine years. So what’s next? Plenty of other giants are going to be created as the cloud market expands, creating opportunity for software and infrastructure plays in cloud automation, security, and networking.
NEW YORK, NY – APRIL 18: Zoom founder Eric Yuan make a toast after the Nasdaq opening bell ceremony … [+]
Cloud and communications infrastructure – the underlying technology that delivers your Netflix or your Zoom call – requires immense scale and complexity. Moving forward, this infrastructure will be increasingly automated and software-based, requiring a range of tools driven by Artificial Intelligence (AI), Machine Learning (ML), and various forms of orchestration, security, networking, and automation software. Within the general cloud infrastructure, companies are vying for leadership in some key themes. Some of the specific trends we see accelerating in cloud infrastructure include unified cloud security, distributed cloud networking, cloud automation, edge cloud, and cloud data management.
Futuriom spent months analyzing technology trends and private companies in the cloud and communications infrastructure market to find the promising private companies. The results were recently released in our Futuriom 40 report, which detailed the top trends in cloud infrastructure. Let’s start with the top trends and then move to the top private companies.
First, let’s look at the key trends in cloud infrastructure:
• Cloud Infrastructure Automation. Humans can no longer keep up the scale and speed of the cloud. Cloud automation will use real-time collection of data, AI, and abstraction of infrastructure elements using Application Programming Interfaces (APIs) to build software orchestration and automation tools that respond to changing conditions and needs in real time.
• Distributed Cloud Networking. Software-driven networking technologies including software defined wide-area networking (SD-WAN) and multi-cloud networking (MCN) using Web interfaces and API gateways will be used to build secure, dynamic, virtualized networks to connect distributed applications running across clouds.
• Edge Cloud. The addition of new access methods such as 5G and satellite as well as the creation of billions of new connected devices will require a wide range of cloud and communications to deliver capabilities closers to the customers or devices. This will result in an expansion of the cloud known as the Edge Cloud.
• Cloud Data Management. As the scale of cloud workloads grows, so does the proliferation of data. It must be managed effectively and securely to service the needs of cloud applications.
• Unified Cloud Security. Just like humans can’t keep up with the changes and scale or cloud infrastructure, managing security is also an issue. Integrated cloud security tools will leverage automated data ingestion, artificial intelligence, and machine learning (ML) to monitor and detect applications and identity-driven behavior and remediate anomalies.
Some of the innovators in cloud infrastructure, as I mentioned, have only just come to the public markets in the past year. With interest rates low and digital transformation efforts accelerating, expect the pace of innovation and investment to continue to accelerate. This can be seen in the private venture market, where 2020 was another record-setting year with $300 billion in venture capital deployed. Cloud infrastructure was a big beneficiary, with a large crop of private companies growing fast and attracting customers.
So who are the hottest private companies that might be future IPOs? Futuriom combed through 12 months of reports and analysis pieces, spotting the key companies in these developing trends. The Futuriom list included 40 companies we have been watching, but might be too many for one column. Let’s take a look at some of the promising companies that are going to be likely Merger and Acquisition candidates in the next year or two.
Let’s divide these companies into groups based on relative stage of development – 1) Mature potential IPO candidates 2) Growth Stars 3) Promising Prospects.
Working through the review of companies, it’s amazing how many companies have already achieved IPO-type scale in revenue, customers and funding. Many have raised hundreds of millions of dollars.
Based on market development, technology maturity, company size, and customers, some of the key companies to watch for potential IPOs in the next year or two (with the key trend) include: Aryaka (cloud security and networking); Aviatrix (cloud networking); Cato Networks (cloud security and networking); Cockroach Labs (cloud data); Cohesity (cloud data); Couchbase (cloud data); Darktrace (cloud security); Databricks (cloud data); Exabeam (cloud security); Hashicorp (cloud automation); Lacework (cloud security); Netskope (cloud security); Rubrik (cloud data); SUSE (cloud automation); and Versa Networks (cloud networking and security).
Growth stars are companies demonstrating rapid market adoption. Their products have come to market and gained traction, and the companies are gaining significant investments, but might not be ready for IPO primetime. A lot Growth Stars are key acquisition targets before they reach IPO, so this is probably an area that will be fertile ground for M&A.
The Growth Stars we’re watching (with key trend) include: Alkira, Arrcus (cloud networking), DriveNets (cloud networking), Fivetran (cloud security), Itential (cloud automation), Kentik (cloud automation), NetFoundry (cloud security and edge cloud), PacketFabric (cloud networking), Pensando (edge cloud), StackPath (edge cloud), Tigera (cloud security), TrueFort (cloud security), Vapor IO (edge cloud), and WeaveWorks (cloud automation).
I liken these companies to top draft picks that aren’t All Stars yet. These are companies are generally in the early stages of development. They have products that have recently come to market But haven’t fully fleshed out the team and are in early stages of funding. But many of the top prospects have intriguing products with a unique spin on the market, a top team, and well-known investors.
Some of the top prospects in cloud and communications infrastructure we are watching include EDJX (edge cloud), Fortanix (cloud security), Infiot (cloud security and cloud edge), and Netris (edge cloud and cloud automation).
All of these areas of cloud infrastructure, stretching from cloud automation to security, are going to be fertile areas of development in the future. The transition of applications from private enterprise and private cloud has just begun, with less than 20% of applications currently believed to be cloud-based. As we build the Information Technology infrastructure in the cloud, the thirst for new tools and technology will be strong for decades to come.
R. Scott Raynovich is the Founder and Chief Analyst of Futuriom, an independent cloud technology analysis firm. He has been following technology markets as an analyst and